Policy Abuse
February 1, 2024

How Pervasive Is Policy Abuse?

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Policy abuse can be more expensive than chargeback fraud

The Current State

The ecommerce marketplace has been nurtured by convenience. Customers appreciate reseller options, promo codes, and lenient return policies. Policy flexibility has a downside. It becomes a problem for merchants because flexibility creates opportunities for policy abuse. Policy abuse can be more expensive than chargeback fraud, potentially costing the world of business billions of dollars lost to abusers. Up to two thirds of retailers may be in a position to recoup less than half of returned merchandise.
Still, returns, refunds, and promotions are still seen as big parts of successful strategies.

Remember Ecommerce Before Returns and Refund Policies?

It may be shocking to hear, but there was a time when return policies were nearly non-existent. The assumption in the marketplace was customers were responsible for making informed buying choices, and if they were dissatisfied then the retailer wasn’t responsible.
Was it better? Well, it was different.
A sense of accommodating customer needs became one of the tools in the toolbox merchants used to make them stand out from their competition. “Satisfaction guarantees” evolved a need for liberal return policies. As a result, customers changed their expectations. Customers now assume flexibility in return policies. Oddly, this flexibility has reduced rates of return, since it gives customers more confidence in their purchasing.
A marketplace that made the mantra “satisfaction guaranteed” popular ended up pushing other shopping incentives to compete for customers. Merchants introduced promotions and programs with layers of discounts and coupons and other loyalty rewards.
It grew into a lot of moving parts. Moving parts are where stuff breaks down.

When Good Customer Strategies Go Bad

Any new development has unforeseeable consequences. Creative return policies designed to make customers happy open doors for policy abusers. For example:
  • Returns abuse: Policy abusers figured out they can return items repeatedly for illegitimate reasons.
  • INR (item not received) abuse: Easier in an internet-heavy marketplace. Policy abusers realized they can sometimes just claim they didn’t receive a product, when they did.
  • Promotion and loyalty abuse: Abusing loyalty programs and other promotions might be harder to track, but it’ll still impact a merchant’s bottom line. Policy abusers may be able to create fake accounts and get “new customer” discounts more than one time, or applying more than one promotional code.
Abusers Friendly and Professional
Fraudsters — the Spectrum of Policy Abuse
Policy abuse isn’t always the act of professional policy abusers. Good customers might just be after a good deal, and as a result they might exploit flexible points in policy.
The term we usually assign to that is “friendly fraud.” A certain amount of friendly fraud can often get written off as one of the costs of doing business.
There are people who approach policy abuse with a far more, shall we say, entrepreneurial spirit. One example is “serial fraud”, which might look like a customer making repeated resale abuse. There are also “professionals” in the fraud industry who learn their trade on the dark web. Merchants can lose a lot of money to policy abusers who have entrepreneurial spirits.

Traditions of Liberal Refund and Return Policies

Merchants maintain flexible return policies. They keep creating clever promotions and generous loyalty programs. We may not say it as often, but “satisfaction guaranteed” is still a mantra driving marketing decisions. Merchants figure they can afford a few abusers for the benefits in customer attraction and retention. A lot of merchants depend on promotions to remain competitive in today’s marketplace.
Customer satisfaction, and its closer sibling customer loyalty, tend to come with liberal return policies. The option to easily return a product creates a confident shopping experience and better customer retention.
Policy has become a marketing tool. Companies can use policies toward promotions, discounts, and returns to compete in the marketplace.
Rising Losses from Policy Abuse
The problem is that the details of policy use cases prove immaterial. Merchants see policy abuse losses rise. Market trends have seen policy abuse losses range from one third for return abuses to almost two thirds for INR abuse. Considering the accompanying costs of policy changes and maintenance, these numbers are frightening. INR abuses grow more common all the time, because policy abusers find new gaps in merchant policies every year.

Policy Abuse and Its Impact on Merchants How Pervasive Is Policy Abuse? The Current State

INR abuse is rising right now. The marketplace, writ large, is dominated by ecommerce. Everyone does business on the internet now, which makes it easier for policy abusers to make INR claims. Most merchants find it cheaper to write off the claims instead of investigating them. A medium-sized company based in Hackensack, NJ, might ship products everywhere in the world, but might not have the resources to ensure that every package arrives on every doorstep.

Returns Abuse

When people take advantage of a merchant’s liberal return policy, we call that return abuse. There are different kinds of return abuse with different levels of harm to a merchant.
There is, for example, a practice called “bracketing” or “wardrobing.” Customers might order a lot of examples of a product, maybe a pair of shoes in seven sizes, and return all of them except one.
Shipping and processing costs fall on the merchant when this happens, most of the time.
Some merchants build this feature into their policies to give their customers a flexible shopping experience. Every now and then, policy abusers will take advantage of this “bracketing” option to return items that they’ve used extensively, potentially making that product impossible to resell.

INR Abuse

When people make a claim that they never received a purchased product, but they did, it’s called item not received abuse, or INR abuse. If they get a refund for the product, they’ve basically stolen it.
In a marketplace dominated by ecommerce, INR abuse attracts a lot of policy abusers. A lot of merchants can trace their losses to increases in INR abuse.
It’s hard to get actionable data about INR abuse. Not because the data isn’t there, but because it’s mixed in with a benign dataset, since sometimes deliveries genuinely don’t arrive.
A lot of merchants don’t have the systems in place to properly gather and act on data that tells them about their INR abusers.
But they could.

Promo Code and Loyalty Program Abuse

When people abuse loyalty programs or promotional codes out of all proportion to the initial intent of those programs, we’d call that promo code abuse or loyalty program abuse.
A member of a merchant’s loyalty program might share their benefits with other consumers.
Or a customer may sign up for a loyalty program with more than one set of user data, and receive promotional benefits more than once.
Fraudulent activity that abuses promotional and loyalty programs produces tricky data, but not impossible data to track. There are tools around that make it possible to decrease the rate that abusers can take advantage of unforeseen trouble spots in a merchant’s promotional and loyalty program policies.

Reseller Abuse

Sometimes people will buy a merchant’s goods and then resell them at a markup. We call this reseller abuse. It’s a widespread problem.
Online marketplaces, particularly “community-based” platforms like Facebook Marketplace, create spaces where people can make profits off products that they purchased in bulk or at discounted prices. There are bots that have been designed to search the internet for discounts or bulk rates that “resell abusers” can use to build inventory.
Quickly buying as much inventory as they can of limited edition items is a strategy these resell abusers often use. Concert tickets, for example, are a product that attracts resell abusers.